Elon Musk says Twitter deal is temporarily on hold

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SAN FRANCISCO — Elon Musk tweeted early Friday that his $44 billion bid to buy Twitter was temporarily on hold as he reviews the number of spam accounts on the site, sending the company’s shares on a steep decline in the pre-market exchanges.

“Twitter deal temporarily suspended pending details supporting calculation that spam/accounts indeed represent less than 5% of users,” he tweeted, referring to a Reuters article from the week. latest citing a Twitter file.

About two hours later, he added, “Still committed to acquisition.”

It was not immediately clear how Tesla CEO would suspend the deal or how serious the threat was. Musk is prone to brash statements on Twitter, which caught the attention of the Securities and Exchange Commission. The terms of the agreement call for a $1 billion severance fee.

Musk and Twitter did not immediately respond to requests for comment.

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Prior to the tweet, Musk was already seeking additional investors in his $44 billion Twitter offering as a market downturn puts pressure on his funding.

Tesla has lost $400 billion in market value since Musk’s interest in Twitter became public in early April, driving a wedge in its acquisition plans at a time when it has pledged $21 billion of its wealth to fund procurement. Musk had planned to buy Twitter with a combination of loans and equity commitments, leveraging in the deal a large chunk of his stake in the world’s most valuable automaker – which he derives most of from her wealth.

Musk’s net worth, which makes him the richest man in the world, has fallen by around $50 billion in recent weeks, according to Forbes’ Real-Time Wealth Index. And Tesla stock has lost almost 30% of its value in the past month.

Musk disclosed more than $7 billion in funding last week from sources including investment firms, Oracle founder Larry Ellison, cryptocurrency exchange Binance, Qatar’s sovereign wealth fund and the prince. Saudi Arabian Alwaleed bin Talal.

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Now Musk has been seeking additional investments beyond what he had originally planned, due to the economic downturn and weakening Tesla stock price, according to people familiar with the negotiations who spoke under on condition of anonymity, citing the sensitivity of the discussions. .

Partly because of the recession, Musk and the bankers involved in the deal have been under pressure to solidify their partners. Among them: Yahoo owner Apollo Global Management, which is expected to provide more than $1 billion in funding with a group of partners, according to one of the people.

And CNBC reported on Thursday that startup investor Jason Calacanis is lining up investors to participate in Musk’s ownership bid. Potential investors who spoke to The Washington Post said interest in Musk’s offer remained high due to the belief that he would make his investment pay off, despite his statement that Twitter’s economics would not. did not concern.

Tesla shares rose more than 5% in premarket trading after Musk’s tweet early Friday. Investors in the electric car company led by Musk are concerned that the billionaire is leveraging his stake to fund the Twitter deal.

It wouldn’t be the first time Musk has tweeted something that moves the markets; sometimes the practice gets him into trouble. Most famously, he tweeted in 2018 that he had secured financing to take Tesla private at $420 per share. The SEC fined him $20 million. He also tweeted that Tesla is overvalued and tweeted a poll asking the public if they should sell some of their stake in Tesla.

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There were no new SEC filings regarding the deal Friday morning, the normal course of action for major changes, analysts said.

“To do this in a tweet and not in a filing is wrong, and it sends the market into a circus show,” said Wedbush Securities analyst Dan Ives.

The Twitter bot problem isn’t new to Musk either. He cited ridding the social media site of spam bots, or automated accounts that often promote products or programs, as one of his main goals for improving Twitter.

“If our Twitter auction succeeds, we’ll beat the spambots or die trying!” he tweeted last month. In an interview that aired this week, he reiterated that the company needs to crack down on bots and build trust with users.

Some experts said it could be a tactic to renegotiate the deal price.

“I can only say that in terms of a merger, it’s a pretty thin reed to undo a deal,” said Ann Lipton, associate professor of law at Tulane University. “Sometimes this sort of thing is used as a basis for renegotiating a sale price, but again, unless the issue has a much bigger financial impact on Twitter than has been reported, it’s not. not solid ground for that either.”

Lipton said issues, including user accounts, would typically have been checked before the parties agreed to a deal.

Here’s what Musk said about buying Twitter

The terms of Musk’s deal to acquire Twitter allow him to tweet about his acquisition “as long as those tweets don’t disparage the company or any of its representatives.”

The deal has already significantly disrupted Twitter internally since it was announced last month. CEO Parag Agrawal announced the departure of two top executives this week, and many employees expressed concern about what Musk ownership could mean for the company.

Some employees are particularly wary of Musk’s calls to promote ‘freedom of speech’ on the site, a stance they say could result in the rollback of security policies the company has in place to protect users. in line.

In recent days, Musk has warned that he does not yet own Twitter, although he has laid out clear plans for the social media service – such as restoring former President Donald Trump’s account, which has was banned after the January 6, 2021, attack on the United States Capitol.

“If the Twitter acquisition is completed, the company will be very focused on software engineering, design, [information security] & server hardware”, it wrote in a tweet last week, adding: ‘Also the work ethic expectations would be extreme, but far less than what I demand of myself.’

He said at a summit with the Financial Times on Tuesday that Trump’s ban “was a morally wrong move, to be clear, and stupid in the extreme.”

The deal could also be affected by outside factors, such as regulatory review by the Federal Trade Commission or the SEC. The Wall Street Journal reported Wednesday that the SEC is investigating Musk for late notification that he bought a 5% stake in Twitter.

The Washington Post previously reported that it could have earned him $156 million.

Musk has used much of his Tesla stock as collateral for his loans, making the recent economic downturn a particular issue for his bid. Tesla has warned of the risks it faces due to the amount of Tesla stock Musk has pledged as collateral. Tesla shares were trading below $730 on Thursday, well below the over $1,100 mark in early April. A drop of several hundred more dollars could trigger requirements that force Musk to sell some stocks, analysts said.

At one point last year, he had pledged more than half of his stock as collateral, according to financial documents. Because Twitter’s offer would only increase that exposure, Musk has come under pressure to scale back his equity pledge, according to people with knowledge of the matter who spoke on condition of anonymity to discuss sensitive issues.

Elon Musk is worth $270 billion. He would buy Twitter with an IOU.

In its annual filing, Tesla was open about the potential risk.

“If Elon Musk were forced to sell common stock that he has pledged to secure certain personal loan obligations, such sales could cause our stock price to decline,” according to the document.

“We are not a party to these loans,” the company wrote. If his stock price drops, Tesla wrote, Musk could be forced by banks to sell Tesla stock to meet his loan obligations.

This could further depress the stock.

“It becomes a spiral,” Ives said.

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